By Nina Chestney
LONDON (Reuters) - Mechanisms to fight climate change need to be strengthened and made more transparent to reduce increasing risks of corruption, Transparency International (TI) said.
The watchdog group released a report on Saturday, entitled "Global Corruption: Climate Change," and based on contributions from more than 50 experts.
It found that stronger oversight is needed in the countries most affected by climate change, which will ultimately make policies more effective.
On the Berlin-based group's ranking of nations according to corruption risk, where 0 is extremely corrupt and 10 is "very clean," none of the 20 countries most affected by climate change, mainly in Africa and South Asia, scored higher than 3.5.
It found Afghanistan was most at risk of corruption with a score of 1.4, while Thailand scored 3.5.
It is estimated that total global climate change investments will reach almost $700 billion by 2020.
"Where huge amounts of money flow through new and untested financial markets and mechanisms, there is always a risk of corruption," the report said.
Corruption risks are high because of the complexity, uncertainty and novelty around many climate issues.
Carbon markets, the main financial tool for combating climate change, continue to be shaken by fraudulent activity.
Over the past couple of years, the European Union's $134 billion emissions trading scheme has been blighted by the re-sale of used carbon offsets, hacking, theft and continuing value-added tax fraud.
The integrity of the U.N.'s Clean Development Mechanism (CDM), which encourages emissions cutting schemes in poor nations, was dented after some project developers were accused of exploiting the system.
The scheme has also been criticized for being too opaque and not delivering additional emissions cuts.
"It is imperative that these lessons be considered in establishing new markets, and used to improve and reform the existing mechanisms," the report said.
The forestry sector is especially vulnerable to corruption due to high international demand for timber, weak land ownership rights and marginalized indigenous communities, TI said.
The World Bank estimates that $10 billion to $23 billion worth of timber is felled illegally or comes from suspicious origins each year. This needs to be tackled before a U.N.-backed forest preservation scheme, called REDD, can work, according to the report.
The REDD scheme is expected to be established as part of a broader global climate pact from 2013, from when it could generate around $28 billion a year of funds.
Better oversight of forestry is essential to ensure projects are verified properly and carbon credits are not double counted or fraudulently traded.
"Creative accounting can lead to the double counting of emissions by companies of their own reported mitigation efforts, (...), thus nullifying the environmental integrity of the emissions reductions," the report said.
Corruption risks also exist in political decision-making and climate financing and through the mismanagement of public funds, the report said.
(Reporting by Nina Chestney, editing by Anthony Barker)